What should sophomore scaleups do when early adopter growth dries up?
DOUG: Freshman scaleups were trying to master distribution. So sophomore scaleups must have reached a scalable sales process.
ROLAND: Yes, sophomore scaleups have figured out distribution. They are adding much sales capacity, funded by a healthy gross margin on their product. New customers have a higher projected lifetime value than it cost to sign them up. But moving their product into mainstream markets is not proving as easy.
DOUG: What customer type are sophomore scaleups selling to?
ROLAND: This is a key challenge. Sophomore scaleups are running out of early adopters to sell to. Even across all the verticals or segments they have been targeting. They are having trouble breaking into the mainstream market.
DOUG: What milestone have sophomore scaleups reached?
ROLAND: Sophomore scaleups have reached market-channel-fit. They have found at least one channel to sell to their market cost-effectively. They have a working distribution model.
DOUG: And how much money have they raised?
ROLAND: Sophomore scaleups have raised a Series B round from venture capitalists. This allows them to ramp up scaling distribution before incumbents can move in.
DOUG: How far have sophomore scaleups’ products penetrated into the marketplace?
ROLAND: People recognize sophomore scaleups’ products as a real solution for a market problem. Anecdotal case studies make place for rankings in analyst reports and market shares.
DOUG: What challenge do sophomore scaleups have to master?
ROLAND: Sophomore scaleups are trying to break into the mainstream of pragmatic, non-visionary customers. They do this by “deepening” their serving of a well-targeted mainstream beachhead market. With better understanding, market customization and a 100% product solution.
DOUG: How big are sophomore scaleups’ work forces and revenues?
ROLAND: Sophomore scaleups have scaled their revenue to between $5M–$25M per year. They are growing their workforce fast, from 25 to 80 employees. Functional departments are growing into their own. We start seeing several management layers below the CEO.
Roland Siebelink regularly speaks and writes about leadership in fast-growing tech startups. You can find more of his insights, including free chapters of his book “Scaling Silicon Valley Style.”